An v. Despins

Background

The plaintiffs—Tao An, Chungang Guan, Cui Qingyun, Huimin Lin, Beile Li, Yanming Wang, Tao Zheng, Zheng Hu, Yuan Cao, and Linwan Feng—sued Paul Hastings LLP and its partner Luc A. Despins. They alleged that Paul Hastings and Despins were agents of the People’s Republic of China or the Chinese Communist Party and were required to register under the Foreign Agents Registration Act (FARA) because Paul Hastings provided legal services related to the global public offering of Jinshang Bank. The plaintiffs also alleged that they were victims of a harassment campaign connected to China and the Chinese Communist Party.

The opinion described related events involving Ho Wan Kwok’s bankruptcy case. The bankruptcy court had appointed Despins as trustee of Kwok’s controlled entities, and had enjoined Kwok and people acting with him—including plaintiff Beile Li—from harassing or publicly exposing information about the defendants. The opinion also discussed similar FARA lawsuits filed against people perceived to be Kwok’s adversaries and the involvement of plaintiffs’ counsel in some of those cases.

Motion to Dismiss

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction and under Rule 12(b)(6) for failure to state a claim. The plaintiffs argued that the court could infer a private right of action under FARA. The court rejected that argument, explaining that FARA gives the Attorney General authority to enforce the registration requirement and contains no indication that Congress intended private individuals to sue under the statute.

The court also held that, even if FARA supplied a private right of action, the plaintiffs had not established standing. Standing requires an injury in fact, a connection between that injury and the challenged conduct, and a likelihood that a favorable decision would redress the injury. The court found that the complaint did not plausibly allege a concrete and particularized injury traceable to the defendants’ alleged failure to register. It found no injury allegations for nine plaintiffs and found that the allegations concerning Cui Qingyun and his family did not connect their alleged mistreatment to the defendants.

Because the court lacked subject-matter jurisdiction, it dismissed the amended complaint without prejudice. It declined to grant leave to amend because the plaintiffs had already amended once and had not cured the jurisdictional defect. The court expressly did not reach the defendants’ Rule 12(b)(6) argument.

Sanctions and Fees

The defendants also moved for sanctions under Rule 11. Rule 11 requires an attorney filing a pleading to make a reasonable inquiry into whether the filing has legal and factual support and is not being presented for an improper purpose. The court found the FARA claims frivolous because the complaint lacked adequate allegations of standing and did not plausibly show that Paul Hastings or Despins qualified as agents required to register under FARA. The court also found that the plaintiffs had filed the lawsuit to harass the defendants, based in part on the lawsuit’s connection to Kwok’s campaign, similar litigation involving Kwok’s perceived adversaries, and the complaint’s alleged disregard of the bankruptcy court’s injunction.

The court found that the defendants had complied with Rule 11’s 21-day notice-and-correction period and that sanctions were appropriate. It awarded the full amount of reasonable attorneys’ fees as well as costs, concluding that the award was necessary to deter repetition of the conduct. The court imposed the fee award jointly and severally on the plaintiffs and their counsel. The defendants were ordered to submit an application for fees and costs by August 11, 2023. The court granted both the motion to dismiss and the motion for reasonable attorneys’ fees and costs as sanctions.